"We hear from customers that they do want to go to one site, but they need a broad and deep variety of imagery on the site. This is true of all customers -- editorial and creative in all geographies."

Jonathan Klein, Getty Images

EDITORIAL STOCK CHALLENGES

March 1, 2004 (Story 619) - 2004 is shaping up to be a very interesting year for Editorial stock photography -- the last frontier in the delivery of stock photography online. The editorial side of the business will be a major focus for Getty Images in 2004. And it is the only real opportunity left for them -- now that they dominate the delivery of images to the Corporate/Advertising side of the business.

In a recent independent study of 300 creative professionals at advertising agencies and corporations, paid for by Getty, it was determined that 77% of customers go to Gettyimages.com first for their imagery needs.

Let me review Getty's position. In 2003 they generated $435.5 million in revenue from the Creative side of their site and about $56.65 million from their Editorial offering that includes News, Sports, Entertainment and Archive images. This is quite a discrepancy when we look at the actual world market for still stock images. I believe that if we divide the market into two segments -- Editorial and Corporate/Advertising -- somewhere between 40% and 50% of the revenue comes from Editorial usages.

Getty estimates that currently they only have about 10% of the Editorial market, but they also admit to investment analysts that they don't know how large the Editorial market is, or the portion of image use for Magazines and Newspapers as compared to the portion for Books.

My estimate of the total market for stock and spec-editorial still images worldwide is between $1.2 and $1.3 billion annually. This includes the $90 to $100 million generated by the photo divisions of the world's major wire services -- AP, Reuters, AFP, DPA, Kyodo, etc. -- but does not include assignment fees. Thus, it is easy to estimate that the Editorial side of the business may be around $560 million (Getty's $56.65 being about 10% or the total). This demonstrates that there is much more room for Getty to grow on the editorial side, than on the creative.

Editorial Market

The first thing we need to do in examining the Editorial market is recognize that there are two distinct segments -- Magazines, Newspapers and TV (MNTV) on one side and Book Publishing on the other. Based on past industry surveys, I believe that each of these segments represents about 50% of the Editorial market, or about $280 million each on a global basis. This distinction is important because the types of images each segment needs are often very different.

Within the MNTV segment there is "spot news" or "hard news" and "features". Getty does a good job covering major news subjects in News, Sports and Entertainment. And these images will ultimately move to Hulton Archive if they stand the test of time. But there are a lot of lesser issues that special interest groups or special interest publications need that are completely off the radar screen of what one would consider to be "major news". In some cases these take the form of feature stories like "families in crisis" or "hybrid cars are good for the environment "where the subject is covered in greater depth than might be the case of a news story on "the family" or "hybrid cars".

In other cases all that are needed are single photos, but these photos must illustrate narrow and specific points that are only relevant to those with a deep interest in the particular subject matter. That's what "special interest" publications are all about. The value of such photos is often in how clearly they illustrate the specific point, not in how unusual or "creative" they may be if we define "creative" as seeing something we're used to in a totally new and different way. Often the only people who can edit such photos properly are those who have an in-depth understanding and knowledge of the specialist subject matter being covered because it is the subject, not its fine art characteristics, that make the photo useful and valuable.

Book publishers use some of the hard news images generated for Newspapers and Magazines, but the vast majority of what they need tends to fall into special interest categories. And when books need it, they often need a depth of coverage in the category. This is the kind of imagery that the guys covering hard news never get, because it is not tied to the major news stories and it is not what they do.

Thus, a big part of the magazine industry, as well as book publishers, need images that don't fall into the categories of "major new stories". The volume of uses of any specific image related to these special interests tend to be low compared to the uses of major news and entertainment images, but the number of different images needed is huge.

Getty's editorial coverage is currently focused toward the high volume, general interest subjects which in my opinion means that currently a large segment of the editorial market is not available to them.

On the other hand, given the difficulties of trying to obtain and maintain the right images on every Special Interest subject, sellers like Getty must ask themselves, "Will the benefits of serving these Special Interests be worth it, considering the costs?" And, "Just how big a share of the Editorial Market are these special interests anyway?"

Growing Editorial

I'm not going to bet against Getty, but I think they will have a much more difficult time with the Editorial market than they did with Advertising. They have the marketing muscle. But it seems to me that the critical issue they must address is obtaining the right content. They have 650,000 images on the Creative section of their site and 1.6 million Editorial and Archive images. To some this would seem like an impressive number, but the Editorial imagery is focused on current news, sports and entertainment personalities. I believe the special interest publications and the book publishers need a depth of material on a lot of other subjects not included in those three categories.

Roger Ressmeyer, a former Getty Images VP and the architect of Getty's Photographer's Choice Program, points out, "Getty Images has accomplished miraculous things already, and I don't think we give them enough credit. For example, acquiring and consolidating dozens of businesses is a road that ruins many ambitious companies. Acquisitions rarely result in the greater efficiencies and profitability that 's anticipated when purchase plans are dreamed up. But Getty has succeeded at just about everything they've tried to accomplish, often exceeding the most optimistic projections."

"For this reason, when Getty Images focuses on gathering editorial feature images, I'm sure they'll succeed beyond nearly anybody's expectations. They've got a number of leaders, from Jonathan, Nick Evans-Lombe and the executive team and on down, with a long history of succeeding with new initiatives", he continued.

To be fair, Getty has some of what is needed in certain specialist categories on the Creative section of their site. I'm sure Editorial customers have been buying these images. I have no idea how many, but certainly total revenue for Getty from Editorial users is a lot more than the $56 million their 2003 Editorial revenues would indicate.

But the interesting question is: "Will Getty be able to raise their share of the Editorial market from 10% to something approaching the 60% to 70% of the total market as they did with the Commercial and Advertising sector of the market?" (Remember Tony Stone Images had less than a 10% of the Advertising market when Getty bought it.)

Getty would argue that within their existing file they have some imagery on everything that is important. That is certainly true. But I believe, that in many, many cases they do not have the depth of imagery necessary, or the special knowledge necessary to understand what images these specialist markets will need in the future.

Who's right? Because Getty has decided to aggressively pursue this Editorial market we'll have the answer in the not too distant future. If they have all the content they need they'll do just fine because there will be no lack of excellent marketing. But, if it is a matter of not having the right content no amount of marketing will make up for it because specialists have very specific needs and images that deal with the subject in a general way simply won't do.

Single Image Sales

One of Getty's biggest weaknesses with the Editorial section of its automated e-commerce site is that it has had little or no capability to sell single images "ala carte" as the Creative section does. Images on the Editorial section are primarily sold through subscriptions. Special interest buyers don't need or want subscriptions. They need to be able to buy a single image when it happens to fit their specific need.Getty's small share of the

Editorial market may indicate that Special Interest buyers make up a larger share of editorial than some might expect. Certainly with Getty's marketing power they should be reaching a large segment of the potential buyers. If those buyers aren't purchasing many images it may mean that they simply can't find the specific subject matter they need on the Getty site.

Corbis, on the other hand, has a much broader selection of Editorial imagery on its site and I believe -- although hard figures are not available -- that a much larger percentage of Corbis' total revenue comes from Editorial than is the case with Getty. In fact, my guess is, that of their $140 million in total revenue in 2003 more than $60 million was for Editorial uses. Why do they do so much better in Editorial sales -- on a proportional basis -- than Getty? I believe it is because they have greater variety and a deeper selection of the type of images the editorial market needs.

Corbis has always been more editorially focused than Getty. In its early years it added a wide range of special interest subjects to its collection. Their editing was much broader and eclectic than Getty's has ever been. Many of these Editorial images, accepted on a non-exclusive basis in the early 90's, are earning significant revenue today. In the last few years, Corbis' has tightened their editing and put more emphasis on imagery for advertising, but photographers with experience with both companies claim that Corbis still accepts more images from their shoots than is the case with Getty. Getty's editing philosophy is probably exactly right for the advertising market, but it may not be right for Editorial users.

I know Allstock (a Getty acquired company) photographers who had virtually all their images returned after the acquisition. Those images were offered to Corbis and they accepted many of them. Now those images are earning significant dollars for Corbis and the photographers -- because the subject matter is of things that special interest buyers still want to use.

I believe Corbis has a much stronger offering to the Editorial market than Getty -- particularly for the book publisher and specialist publication buyers -- and I don't think they are going to give up that advantage easily.

Some would say that if Getty simply makes its current editorial content available for easy "ala carte" licensing that will solve the problem and Getty will be able to compete very effectively with Corbis. While that will certainly help, I believe the range of content will prove to be the bigger problem and one that is not so easily solved.

It's worth considering the National Geographic images that are currently available in the "Creative" section of the Getty site. Every one is fully model and property released so they can be available for advertising. But, given the way images are shot on editorial assignments the release requirements eliminate some excellent images produced by Geographic photographers that could be very marketable in an Editorial (non-advertising) context.

Bill Perry of National Geographic says, "We are very pleased with the results of our partnership with Getty Images, but we would like to find a way to make a deeper edit available to editorial buyer. We have great confidence in the power of Getty's platform and believe Getty's goal of expanding its sales to editorial users will bear fruit."

Geographic photographers shoot hundreds of rolls of film and produce thousands of images on every story. After rigorous editing by Geographic editors the entire take may be narrowed down to a very tight edit of 50 to 75 "prime selects" that illustrate all important aspects of the subject. Given the way Geographic approaches its subjects, probably nobody has a better understanding of the subject matter than the photographer and his or her editor.

There is a good chance that various editorial users would be interested in many of these prime select images. However, once Getty's advertising oriented editors have completed their selection of the "prime selects" usually only a small portion of the images make the cut after Getty's additional editing. Perry said, "I sympathize with their position. They know their market and we are very happy with the sales they make to advertising users. We are working to expand what has been a very good relationship."

Getty's editors certainly know the Advertising market and there is no disputing that they are very good at selecting images for that purpose. But, at this point in time, they may not know the Editorial market as well as the Geographic editors. This could be a case -- just like Photographer's Choice -- where someone closer to the subject might be able to provide a perspective on what buyers want and need -- and that could generate increased revenue for Getty Images. Customers won't buy images they can't see.

Obtaining Content

If Getty's current editorial content is not sufficient, one problem they face is that there aren't any big companies to buy like Stone, The Image Bank, VCG, and FPG. The remaining sellers in the editorial arena with a focus toward special interests are for the most part much smaller and there are a lot of them. When Getty first acquired the companies listed above, all of them had a lot of the specialist content in their files that the Editorial market was using. But Getty determined at that time that they didn't want to pursue this segment of the market because the profit margins weren't as attractive. As a result, they got rid of most of these specialist images by returning them to the photographers. They also got rid of most of the people who knew how to edit for this market.

Getty might be able to capture market share be simply bringing many small suppliers of editorial imagery onto their site as 3rd Parties. But, as we've seen from the National Geographic illustration, editing the work from an advertising perspective may not be enough. It may be necessary for Getty to make some radical changes in some of their existing strategies.

They may need to separate their editorial features offering from the fully released advertising offering so the additional editorial material does not dilute the boutique-like, super collection editing experience advertisers currently receive on the Getty site. At the same time they may also want to separate it from their existing subscription based editorial section because that is effectively focused to a very different user group.

They may need to be less rigid on releases, and willing to make users responsible for how they use images. The user must be held responsible for any use that violates personal or property rights. Corbis has always been willing to mix model-released and non-released images in the same search results, but Getty has been unwilling to do this. There are certainly advantages in having good model releases on every image when the focus is selling to advertising. But, that puts severe limitations on the kind of imagery that can be accepted, and many images used for editorial purposes may not need releases.

They may need to be much looser in the editing and accept the judgment of experts in photographing the specialty as to what is useful.

They may need to accept smaller file sizes. The vast majority of users of Editorial material don't need file sizes anywhere near 50MB and digitally created files that are considerably smaller have equal or better resolution than a 50MB scan of a grain-based image.

They will also have to make some tough decisions as to the best way to acquire the Editorial feature imagery they need to build their collection. Is it better to get the images directly from photographers or through 3rd Party suppliers? Getting the imagery through 3rd Parties will dramatically reduce their costs, but they may not be able to bring on what they need fast enough, or have the control they would like. Alternatively, bringing on a host of new photographers focused on Editorial production adds a whole level of costs and administrative problems that they have systematically been trying to reduce and eliminate over the last few years.

While Getty has been adding 3rd Party suppliers, early indications are that they don't intend to add a lot of depth in any of the thousands of special interests areas that Editorial users will be requesting. Part of the reason for this is that they are adding them to an advertising oriented site with a focus on meeting advertising needs, not editorial. I have talked to several agencies, nationally and internationally recognized for the coverage they have in their area of specialty, that have been rejected as 3rd Party suppliers by Getty.

New Channel

One option open to Getty would be to develop a new channel on their web site. Their "Creative" section is aimed at Advertising and Corporate uses and contains images that are at least 50MB and fully model released. Their "Editorial" section is aimed at editorial users who want a subscription service. A new "Publishing" section (there is probably a better name) could offer images that are more illustrative and aimed at the needs of the Publishing community. For the most part these images would not be the kinds of things people in the Advertising community would want to use -- unless, of course, they are creating ads for special interest organizations.

This would allow Getty to clearly separate this editorial feature offering from their advertising section so as not to dilute the super collection editing experience advertisers receive from the existing "Creative" section of the Getty site.

However, there is no indication from Getty Images that they are thinking of moving quickly in this direction. But, the longer Getty delays, the greater the opportunity for other portals to step in or consolidate a position in the special interest segment of the market. This is of particular importance to sellers in Europe because the European market is much more focused toward editorial usages.

Getty would have a tremendous marketing advantage with major publishing users if they could offer a broad range of specialist material on their site. Then the publisher could go to one location -- get everything they needed at one price -- and pay for it monthly on one statement. But, if there are certain things these customers need that Getty doesn't offer then the publisher will be forced to go to other sources and portals. Once these buyers start using other portals there is a greater likelihood that they will also find images at these portals on subjects Getty could have supplied.

Given the uncertainty about Getty's strategy toward broadening their share of the editorial marketplace it's unclear to this writer whether Getty will effectively compete in the market for specialist imagery. Because it is sometimes easier to target and market to specialist users than the mass market, it may be easier for small suppliers to effectively compete with Getty and Corbis if these companies don't have the necessary imagery. Thus, there may still be an opportunity for image suppliers who specialize in Editorial to expand their position in the market.

PICTUREARTS BUYS NONSTOCK

April 16, 2004 (Story 632) - PictureArts has completed an agreement with Nonstock Inc. to acquire the assets of Nonstock's unique, rights-managed picture collection. PictureArts currently manages two successful RM brands - FoodPix and Botanica - and the RF brand, Brand X Pictures. This acquisition probably makes PictureArts the fourth largest imagery seller, in terms of gross revenue, with headquarters in the U.S.. It should be slightly ahead of Jupiterimages which recently acquired Comstock (See Story 625). (Amana, parent of Photonic and Iconica, Zefa and Digital Vision are all certainly larger, but have their headquarters outside the U.S. Masterfile in Canada may be about the same size.)

"The acquisition of this outstanding collection marks an important milestone in the growth of our company," says PictureArts' CEO, Jeffrey Burke. "Nonstock's images will be a strong complement to our existing rights-managed and royalty-free brands. They have a significant roster of Contributing Artists that we are eager to meet. Their distribution network includes a number of strong agents, many that we already successfully work with. We have big plans for Nonstock as a PictureArts company."

Nonstock was created in 1994 by Jerry Tavin and Janou Pakter as an artistic and imaginative alternative image source. The collection now represents over 40,000 pictures from 500 artists, and is distributed worldwide.

"I'm confident that PictureArts will be able to take Nonstock in the direction it needs to go for further growth. I'm very pleased to be joining with such a progressive and successful company," says Jerry Tavin, Nonstock's founder and president. Tavin has been appointed to the position of Senior Consultant for Artist and International Relations with PictureArts.

The Nonstock office in Manhattan will soon become PictureArts' New York office for sales and Nonstock creative. Integration of the Nonstock staff, data and images will begin immediately, gradually folding all the Nonstock assets and operations into PictureArts' enterprise.

Integration of accounting data and processes after an acquisition has been a major problem for some companies in this industry, but Burke says they have a number of former Getty and Corbis people on their staff and believe they have learned from the mistakes of these companies. They are hopeful that they will have all contributor information fully integrated by mid-May. Integration of all the images into the PictureArts database and launch of a completely new PictureArts site is expected to be completed by the end of this summer.

"We're excited to add the Nonstock library to our company," says Lorraine Triolo, PictureArts' Creative Director. "Their collection has a solid core of original and interesting pictures. Their Contributors include some excellent fashion and fine art photographers with whom we are eager to work. Many of their photographers are from outside the mainstream photo industry. We look forward to our first meeting with them in about a month."

PictureArts has planned a meeting in Manhattan where Nonstock's Contributors can become familiar with their company, talk about future plans for the brand and invite them to expand their relationship with PictureArts through other collections. Contributors are now being notified of the meeting and introductory details. All RM contracts with contributors are on a 50/50 basis, but contributors should recognize that a high percentage of PictureArts sales are made through Portals and Sub-agents and that the photographer is receiving 50% of what PictureArts receives from these portals and sub-agents, not 50% of the gross sale fee. Nevertheless, the total revenue that PictureArts receives is significant (as mentioned above in the first paragraph). It is also interesting to note as we pointed out in Story 610 that PictureArts images offered on the Getty Images site are priced at a much higher premium than even Stone images and much more that TIB of Taxi images. Thus, PictureArts photographers, even with the added cut, will probably earn almost as much for the sale of one of their images as TIB or Taxi photographers earn from the sale of their images.

"Our main focus initially will be the grooming and growth of the collection. This begins with introducing our company to their artists, and their artists to our creative group," says Burke. "We plan to make substantial investments in content development. A fundamentally solid, and strategically appropriate collection of pictures is the basis for all our future opportunities with Nonstock."

GREAT QUARTER FOR GETTY

Record Sales and 20.1% Growth

April 23, 2004 (Story 633) - Getty Images, Inc. reported record first quarter revenue of $156.5 million, a 20.1%growth over the $130.3 million earned in the first quarter of 2003, and 16.4%growth over the $134.4 million in sales in fourth quarter 2003. Theybenefited significantly from the currency exchange rates, but even excludingthis currency benefit revenue still grew by 11%.

While the first quarter has often been much stronger than the quarterpreceeding it, this result was much higher than expected. In January Gettyhad told analysts to expect revenue in the range of $141 to $146 million for the quarter.

"Our strong results in the first quarter underscore the leverage in ourbusiness model and reinforces our optimism for 2004. The sales momentum andpositive market trends we began to see at the end of 2003 continuedthroughout the first quarter of this year, with revenue improvingconsecutively each month," said Jonathan Klein, Getty Images co-founder andCEO.

During the conference call Klein said the company had "record revenues inFebruary and again in March" and that there was no end-of-quarter pull backin purchasing as has often happened in pervious quarters. "Every day thereis more evidence that our customers are beginning to spend again onmarketing and communications. Our customers continue to describe their moodas cautiously optimistic. The flow of work is becomming more consistent andtheir clients are beginning to take a longer term view -- talking againabout annual budgets instead of quarterly budgets."

Operating income for the first quarter of 2004 grew 79.5 percent to $42.9million, or 27.4 percent of revenue, compared to $23.9 million or 18.4percent of revenue, in the same quarter last year as the company heldoperating expenses near year earlier levels.

Net income almost doubled to $26.1 million or $0.43 per diluted share, from$13.2 million or $0.23 per diluted share a year ago.

Business Outlook

The company's outlook remains positive about business conditions for thesecond quarter and the remainder of the year. Changes in currency exchangerates and seasonally lower sales typically experienced in the second quartermay negatively impact the company's second quarter revenues compared tofirst quarter revenues. The company expects to report revenue in the rangeof $148 million to $151 million. Excluding the effects of currency, thisrevenue guidance implies approximately 11 percent year over year growth. The company expects to report earnings per diluted share of $0.37 to $.40for the second quarter of 2004.

The company is raising guidance for all of 2004 to the range of $600 to $610million and earning per diluted share of $1.55 to $1.65. Just three months ago revenue for the year was estimated to be between $560 and $580 million.

Revenue Breakdown

Q3 2002

Q4 2002

Q1 2003

Q2 2003

Q3 2003

Q4 2003

Q1 2004

Rights Managed

56%

54%

55.9%

52%

50%

51%

51%

Royalty Free

28%

30%

27.7%

31%

33%

32%

32%

News/Sports/Entertain/Archival

9.3%

9.6%

10.5%

10.3%

Footage

5.5%

5.8%

5.5%

5.2%

Other (Assignment, etc.)

1.2%

1%

1%

1.5%

In the previous quarter Getty Images created new categories for Editorial usages and Footage that varied from what they had been reporting previously. Among the advantages of the new divisions are that it will be much easier to track Footage and Editorial growth in the future. However, for our historic charts we no longer have accurate percentages for Q2 and Q3 of 2003 and I have left those blocks blank. In the revenue chart below I have estimated revenue for these periods based on other figures that are available and I have put those estimates in parenthesis.

It should also be noted that the Editorial segment of revenue still does not cover all the revenue that is earned from Editorial customers. These customers also buy imagery from the Creative section of the site and no breakdown is provided that would give us an indication of how much of that type of imagery these editorial customers purchase.

It should also be noted that "Creative" revenue (RM and RF) has represented 83% of Getty's total since the beginning of 2003. The other categories combined remain at a stable 17% of total revenue.

The above percentages translate into the following dollar figures for the last seven quarters (in millions of dollars).

Q3 2002

Q4 2002

Q1 2003

Q2 2003

Q3 2003

Q4 2003

Q1 2004

Gross Revenue

$118.2

$117.7

$130.3

$127.7

$130.8

$134.4

$156.5

Rights Managed

$66.192

$63.56

$72.83

$66.4

$65.4

$68.5

$79.8

Royalty Free

$33.096

$35.31

$36.09

$39.59

$43.16

$43

$50.1

News/Sports/Entertain/Archival

$11

$11.7

($13.8)

($15)

$14.1

$16.15

Footage

$6.5

$8.15

($6.9)

($6.23)

$7.4

$8.1

Other (Assignment, etc.)

$1.33

$1.33

($1)

($1)

$1.4

$2.35

Revenue Growth

Royalty Free revenues grew 39% in the quarter compared to Q1 2003, and about 16.5% over Q4 2003. Sales of RM were up 8.4% when compared to Q1 2003, but there was a 16.4% increase when compared to Q4 2003.

Average Price Per Usage

CFO Liz Huebner said, "The average price-per-image (ppi) worldwide rose significantly in the quarter. For RM the average ppi was $605 compared with $550 for Q1 2003 and $552 for Q4 2003. For RF the average ppi was $193 compared with $131 for Q1 2003 and $165 for Q4 2003. The agerage pice for a film clip for the quarter was $627 and this was down from $641 in Q4 2003."

Image Used Chart

Q3 2002

Q4 2002

Q1 2003

Q2 2003

Q3 2003

Q4 2003

Q1 2004

ROYALTY FREE

Gross Revenue (millions)

$33.096

$35.31

$36.09

$39.59

$43.16

$43

$50.1

****81.7% ? online sales

$26.477

$28.25

$28.87

$31.67

$34.53

$34.4

$40.93

Price Per Image

$107

$132

$131

$139

$152

$165

$193

Number Images Licensed

247,449

214,015

220,381

227,842

227,171

208,484

212,072

RIGHTS MANAGED

Gross Revenue (millions)

$66.192

$63.56

$72.83

$66.4

$65.4

$68.5

$79.8

Price Per Image

$509

$479

$550

$567

$574

$552

$605

Number Images Licensed

130,043

132,693

132,418

117,108

113,937

124,094

131,900

Total Images Licensed

377,492

346,708

352,799

344,950

341,108

332,578

343,972

Percent RF

66%

62%

63%

66%

67%

63%

62%

Percent RM

34%

38%

37%

34%

33%

37%

38%

Volumes

**** Note: In the past we have been told that RF revenue from CD's and Virtual CD's was "about 20%" of the total RF revenue. This quarter we were told that the CD and Virtual CD revenue was 18.3% of total RF revenue. Thus, I have used this figure for Q1 2004. All the other figures on this line are based on 20% of revenue. This skews the number-of-images calculations somewhat.Nevertheless, I believe it is useful to have numbers to get some idea of trends.

Single images volumes for RF collections were down just under 3%. "This isnot surprising as, consistent with previous quarters, the decrease was dueentirely to a decline in volume from credit card customers. As we have saidbefore, losing these customers has had no impact on revenue. In fact revenuesfrom credit card customers continue to increase. We are working on a plan toturn around decline in volumes from this segment of our customer base andare confident that it will be addressed over the coming quarters," Huebner said.

It is certainly encouraging that the price-per-image used keeps going up,but the volume of uses seems to indicate that there are few, if any, new users out there, despite the improvement in the economy, the theory that the Internet is creating more demand, and very aggressive marketing by Getty Images.

Photographer's Choice

Klein said the year-over-year sales growth of the Photographer's ChoiceCollection (PC) has been more than 260%. Photographer's Choice was introduced inlate 2002 and in the Q1 2003 Klein said that the PC images had generatedover $1 million in revenue. The 260% growth would mean that in Q1 2004revenue for this collection was probably in excess of $3.6 million.

Today there are 9,310 images in the Photographer's Choice collection meaning that theaverage return per-image for the quarter was $386. It is also interestingthat there are a total of 375,004 RM images on site and they earned $79.8million in the quarter. This would mean that the average return per-imagefor all RM images being licensed by Getty was about $212.

The fact that the average return on PC images is 82% better than the average return on allimages is surprising for a couple of reasons. First, the search results areweighted very heavily against PC. As I pointed out in Story 578 lastSeptember, in the first 90 images of any search only 6 PC images appearwhile 20 of Stone, 18 of TIB and 15 of Taxi appear. Somehow, customers arefinding the PC images anyway -- and buying them. One other possibleconclusion from these figures is that photographers are better a pickingimages that will sell than Getty's picture editing staff.

Klein noted that, "there is significantly more interest (in PC from photographers)than we have been able to accommodate," and that the company has struggledto keep up with the photographer demand to add images to this collection.Nevertheless, clearly, the company is very pleased with the results fromPhotographer's Choice.

Editorial

The editorial segment of the business grew by 38% year over year and Klein attributed an important part of this growth to the partnerships they have developed with Time-Life Pictures, AFP, the NBA, and recently Manchester United, and Major League Baseball. He also made note of the two small Entertainment photography companies they acquired last year and the importance of celebrity imagery in the overall Editorial revenue.

Klein pointed out that most of their Editorial content comes from three major countries -- U.S. UK and Australia -- and that to expand sales in other geographic markets they need to expand their content from these markets."You will see more geographical expansion in the editorial part of our business as we focus on increasing our presence outside of our core countries," he said, and indicated that to get this content they will pursue more partnerships and in some cases small acquisitions.

In Q2 2004 they intend to launch a major upgrade of the editorial web site that will give customers a far greater ability to search, purchase anddownload imagery across all creative and editorial collections. This is expected to make it easier for Editorial customers to find the images they need and to further accelerate growth of the Editorial customer base.

Partners

The 3rd Party providers are now being called "Partners" in recognition that they are much more than 3rd Parties. "We have seen that the ability to bring together a broad range of content on one platform has benefits far greater than any of us had originally imagined," Klein acknowledged.

"We hear from customers that they do want to go to one site, but they need abroad and deep variety of imagery at the site. This is true of allcustomers -- editorial and creative and in all geographies."

"Of course it is particularly helpful for Editorial customers who have veryspecialized needs. Because our editorial customers require a broad range ofimagery, the breadth and depth of the imagery on our web site -- and thatprovided by both us and our partners -- is very important to us increasingour penetration into the editorial and publishing market segments."

One thing Selling Stock would like to know is the percentage of images on the site that belong to "Partners", and the percentage of revenue these images generate. We think that number is significant, but so far Getty isn't sharing that information. On the other hand we must thank Getty for all the statistics they do share because their numbers are very helpful in getting an understanding of the industry.

SG&A

Gross margin for the quarter was 72.0 percent, up farom 71.4 percent in thefirst quarter of 2003. Selling, general and administrative expenses (SG&A)totaled $54.7 million, up $1.4 million from the first quarter of 2003. As apercentage of revenue, SG&A declined substantially to 35.0 percent in thefirst quarter of 2004 compared to 41.0 percent in the same quarter lastyear. Excluding the effects of changes in currency exchange rates, SG&Adeclined $2.1 million from the first quarter of 2003.

Cash and short-term investment balances were $356.6 million at March 31,2004, up from $307.6 million at December 31, 2003.

For the first quarter of 2004, net cash provided by operating activitiesnearly doubled to $43.7 million from $22.0 million for the same period of2003. The acquisition of property and equipment amounted to $9.1 million,compared to $8.1 million in the first quarter of 2003.

Geographic Breakdown

The percentage of revenues from the Americas continued to decline and that from Europe increased due mostly to the continued weakness of the dollar relative to the euro rather than a change in buying habits.

Jim Pickerell is founder of www.selling-stock.com, an online newsletter that publishes daily. He is also available for personal telephone consultations on pricing and other matters related to stock photography. He occasionally acts as an expert witness on matters related to stock photography. For his current curriculum vitae go to: http://www.jimpickerell.com/Curriculum-Vitae.aspx.

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